xRepublic of the Philippines

Region XI
Department of Education
Davao del Norte Division
KAPALONG NATIONAL HIGH SCHOOL
Maniki, Kapalong, Davao del Norte

LESSON PLAN IN ENTREPRENEURSHIP 11

July 19, 2017

Content Standards The learner demonstrates understanding of concepts, underlying

principles, and processes of developing a business plan.
Performance The learner independently or with his/her classmates presents an
Standards acceptable detailed business plan.
CODE

I. OBJECTIVES
At the end of the session, the students will be able to:
1. Know the parts in the third section of a business plan.
2. Compute the income statement, balance sheet, and cash flow statement.
3. Appreciate income statement, balance sheet, and cash flow statement as important financial
statements in business planning.

II. SUBJECT MATTER

Topic: Financial Statements
Reference: Entrepreneurship and Small Business
Management by Roberto G. Medina

http://www.investinganswers.com/education/fin
ancial-statement-analysis/financial-statement-
analysis-beginners-1984
Instructional Materials: Questionnaire

III. PROCEDURE
A. Preliminary Activities
1. Prayer
2. Greetings
3. Checking of attendance
4. Review of the Previous Topic
A student will be asked to give a recall on the previous lesson.

B. Lesson Procedure
1. Activity – Class Discussion
a. The teacher will ask the students if they have researched on the parts of third
section of a business plan.
b. The teacher collects the insights of the students’ researches.
c. The teacher will call four (4) students to share their research.
2. Analysis and Discussion
a. What are the parts in the third section of a business plan?
b. What are the three financial statements that must be prepared in business
planning?
c. What is the importance of making an income statement?
d. What is the importance of preparing a balance sheet?
e. What is the importance of preparing a cash flow statement?

3. Abstraction
The teacher deepens the lesson by discussing further about the three financial
statements to be prepared in business planning, and will present examples for
reinforcement of learning.

4. Application
The students will calculate the income statement, balance sheet and cash
flow statement of the following. They will write their answers in a 1 whole sheet of
paper.

A. Income Statement
ABC Snack-Inn has a projected total revenues or sales of Php 5,000,000.00
from January to December 2017. The cost of goods sold (includes the cost of the materials
used in creating the good along with the direct labor costs used to produce the good) has an
amount of Php 900,000.00. The establishment’s operating expenses are as follows; Salaries
and Rent each amounting to Php 500,000.00, Utilities and Depreciation each amounting to
Php 250,000.00. Create an income statement for ABC Snack-In for the year ending December
2017.

Income Statement of ABC Snack-Inn

For the year ending December 31, 2017
Total Revenue 5,000,000.00
Cost of Goods Sold 900,000.00
Gross Profit 4,100,000.00
Operating Expenses
Salaries 500,000.00
Rent 500,000.00
Utilities 250,000.00
Depreciation 250,000.00
Total Operating Expenses 1,500,000.00
Net Profit 2,600,000.00

B. Balance Sheet
For January 2017, ABC Snack-Inn has acquired Php 100,000.00 in its bank
account (cash in the bank). The establishment has accounts receivable of Php
3,000.00, inventory of Php 20,000.00, wages payable of Php 2,000.00, accounts
payable of Php 35,000.00, and owner’s equity of Php 86,000.00. Create a balance
sheet for ABC Snack-Inn.

Balance Sheet of ABC Snack-Inn

For January 2017
Assets
Cash 100,000.00
Accounts Receivable 3,000.00
 Inventories 20,000.00
Total Assets 123,000.00
Liabilities and Owner’s Equity
Wages Payable 2,000.00
Accounts Payable 35,000.00
Total Liabilities 37,000.00
Owner’s Equity 86,000.00
Total Liabilities and Owner’s
123,000.00
Equity

C. Cash Flow Statement

XYZ Merchandizing is the supplier of office supplies in all offices of Tagum
City Hall, from 2014-2015. In 2014, cash sales has an amount of Php 1,000,000.00 and
receivables of Php 3,500,000.00. XYZ Merchandizing spent Php 500,000.00 for the
material costs, Php 600,000.00 for the labor costs, Php 150,000.00 for the capital, Php
200,000.00 for the loans, and Php 1,000,000.00 for the overhead expenses. In 2015, cash
sales has an amount of Php 2,500,000.00 and receivables of Php 3,800,000.00. XYZ
Merchandizing spent Php 800,000.00 for the material costs, Php 800,000.00 for the labor
costs, Php 200,000.00 for the capital, Php 200,000.00 for the loans, and Php 800,000.00
for the overhead expenses. Create a cash flow for XYZ Merchandizing from 2014-2015.
Include the cumulative cash flow.

Cash Flow Statement of XYZ Merchandizing

2014-2015
2014 2015
Cash Sales 1,000,000.00 2,500,000.00
Receivables 3,500,000.00 3,800,000.00
Total Income 4,500,000.00 6,300,000.00
Material Cost 500,000.00 800,000.00
Labor Cost 600,000.00 800,000.00
Overhead Expenses 1,000,000.00 800,000.00
Capital 150,000.00 200,000.00
Loans 200,000.00 200,000.00
Total Expenses 2,450,000.00 2,800,000.00
Cash Flow 2,050,000.00 3,500,000.00
Cumulated Cash Flow 5,550,000.00

IV. EVALUATION
The students will be evaluated next meeting for checking of understanding.

V. ASSIGNMENT
Research on how to validate customer-related concerns through the following:
1. Interview
2. Focused group discussion (FGD)
3. Survey
Bring Manila paper for tomorrow’s activity.

Prepared by: Inspected by:

APRIL JOY C. LASCUÑA GRACE MAE G. FLORES
Teacher I Master Teacher II
A. Income Statement
ABC Snack-Inn has a projected total revenues or sales of Php 5,000,000.00 from January to
December 2017. The cost of goods sold (includes the cost of the materials used in creating the good
along with the direct labor costs used to produce the good) has an amount of Php 900,000.00. The
establishment’s operating expenses are as follows; Salaries and Rent each amounting to Php
500,000.00, Utilities and Depreciation each amounting to Php 250,000.00. Create an income
statement for ABC Snack-In for the year ending December 2017.

B. Balance Sheet
For January 2017, ABC Snack-Inn has acquired Php 100,000.00 in its bank account (cash in the
bank). The establishment has accounts receivable of Php 3,000.00, inventory of Php 20,000.00, wages
payable of Php 2,000.00, accounts payable of Php 35,000.00, and owner’s equity of Php 86,000.00.
Create a balance sheet for ABC Snack-Inn.

C. Cash Flow Statement

XYZ Merchandizing is the supplier of office supplies in all offices of Tagum City Hall, from
2014-2015. In 2014, cash sales has an amount of Php 1,000,000.00 and receivables of Php
3,500,000.00. XYZ Merchandizing spent Php 500,000.00 for the material costs, Php 600,000.00 for
the labor costs, Php 150,000.00 for the capital, Php 200,000.00 for the loans, and Php 1,000,000.00
for the overhead expenses. In 2015, cash sales has an amount of Php 2,500,000.00 and receivables of
Php 3,800,000.00. XYZ Merchandizing spent Php 800,000.00 for the material costs, Php 800,000.00
for the labor costs, Php 200,000.00 for the capital, Php 200,000.00 for the loans, and Php 800,000.00
for the overhead expenses. Create a cash flow for XYZ Merchandizing from 2014-2015. Include the
cumulative cash flow.

A. Income Statement
ABC Snack-Inn has a projected total revenues or sales of Php 5,000,000.00 from January to
December 2017. The cost of goods sold (includes the cost of the materials used in creating the good
along with the direct labor costs used to produce the good) has an amount of Php 900,000.00. The
establishment’s operating expenses are as follows; Salaries and Rent each amounting to Php
500,000.00, Utilities and Depreciation each amounting to Php 250,000.00. Create an income
statement for ABC Snack-In for the year ending December 2017.

B. Balance Sheet
For January 2017, ABC Snack-Inn has acquired Php 100,000.00 in its bank account (cash in the
bank). The establishment has accounts receivable of Php 3,000.00, inventory of Php 20,000.00, wages
payable of Php 2,000.00, accounts payable of Php 35,000.00, and owner’s equity of Php 86,000.00.
Create a balance sheet for ABC Snack-Inn.

C. Cash Flow Statement

XYZ Merchandizing is the supplier of office supplies in all offices of Tagum City Hall, from
2014-2015. In 2014, cash sales has an amount of Php 1,000,000.00 and receivables of Php
3,500,000.00. XYZ Merchandizing spent Php 500,000.00 for the material costs, Php 600,000.00 for
the labor costs, Php 150,000.00 for the capital, Php 200,000.00 for the loans, and Php 1,000,000.00
for the overhead expenses. In 2015, cash sales has an amount of Php 2,500,000.00 and receivables of
Php 3,800,000.00. XYZ Merchandizing spent Php 800,000.00 for the material costs, Php 800,000.00
for the labor costs, Php 200,000.00 for the capital, Php 200,000.00 for the loans, and Php 800,000.00
for the overhead expenses. Create a cash flow for XYZ Merchandizing from 2014-2015. Include the
cumulative cash flow.
Cost of goods sold (COGS) are the direct costs attributable to the production of the goods
sold by a company. This amount includes the cost of the materials used in creating the good
along with the direct labor costs used to produce the good. It excludes indirect expenses such
as distribution costs and sales force costs. COGS appears on the income statement and can be
deducted from revenue to calculate a company's gross margin. Also referred to as "cost of
sales."

For example, the COGS for an automaker would include the material costs for the parts that
go into making the car along with the labor costs used to put the car together. The cost of
sending the cars to dealerships and the cost of the labor used to sell the car would be
excluded.

The cost of revenue is the total cost of manufacturing and delivering a product or service.
Cost of revenue information is found in a company's income statement, and is designed to
represent the direct costs associated with the goods and services the company provides. Cost
of revenue is different from cost of goods sold (COGS) because it includes costs outside of
production, such as distribution and marketing.

Operating expenses include all overhead and labor expenses associated with the operations
of the business.

Depreciation reflects the decrease in value of capital assets used to generate income. It's also
used as the basis for a tax deduction and an indicator of the flow of money into new capital.
(uses to account for the declining value of its assets.)

Income Statement
What it is:
The income statement is one of the three primary financial statements used to assess a
company’s performance and financial position (the two others being the balance sheet and the
cash flow statement). The income statement summarizes the revenues and expenses generated
by the company over the entire reporting period.

How it works (Example):

The income statement is also known as a profit and loss (P&L) statement, statement
of earnings, statement of operations or statement of income. 

The basic equation on which an income statement is based is:

Revenues – Expenses = Net Income

The income statement is important because it shows the profitability of a company during the
time interval specified in its heading. The period of time that the statement covers is chosen
by the business and will vary.

Usefulness of balance sheet

As described at the start of this article, balance sheet is prepared to disclose the financial
position of the company at a particular point in time. This information is of great importance
for all concerned parties. For example, investors and creditors use it to evaluate the capital
structure, liquidity and solvency position of the business. On the basis of such
evaluation, they anticipate the future performance of the company in terms of profitability
and cash flows and make much important economic decisions.

Limitations of balance sheet

1. Many items have great financial value and may be important for the users of financial
statements in making reliable decisions but are not reported in the balance sheet
because they cannot be objectively measured. Examples of such items include the
skill and knowledge of an IT company, a sound customer base and high reputation
etc.
2. The current fair value of various assets and liabilities may be important for some
decision makers but the balance sheet does not disclose it because assets and
liabilities are mostly reported at their historical costs.
3. The value of some items is reported in the balance sheet on the basis of judgments and
estimates. For example the depreciation is usually calculated on the basis of estimated
life of the assets. The book value reported in the balance sheet is therefore also an
estimated value. Another example is the accounts receivable that are reported at their
estimated net realizable value.

Importance of Cash Flow

A cash flow statement tells you where the money went.  A profit and loss statement says
nothing about principal payments you make to the bank.  You could have reasonably good
profits, but the amount of money you pay your bank every month could be putting you out of
business.

Cash flow statements tell you where you spent your money.  If you increased inventory you
used cash.  If you extended more credit to customers you used cash.  If you bought lots of
capital equipment you used cash.  All three of these issues won’t show up on your profit and
loss statement.

A cash flow statement can help you focus on creating excess cash.  Having profits is
important.  Profits are one of the things that help create cash.  There are other things that can
also help you create cash.

If you can pay less for capital equipment you need you are creating cash while spending
money.  If you can collect receivables from your customers faster you are creating cash.  If
you use inventory more efficiently you create cash.  Concentrating only on your profit and
loss statement makes it difficult to focus on cash.
Cash flow statements often provide better KPI’s (Key Performance Indicators) than
profit and loss statements.  I believe developing excess cash is a great KPI.  This is an
activity that literally every area of your company can get involved in through individual
drivers.

I think being able to know what moves the needle on developing excess cash often helps to
create value.  Knowing what needs to move the needle on profits is only part of the story. 
Companies that concentrate on creating excess cash often also create better enterprise value
than those companies that only concentrate on profits.

Cash flow statements help with financing decisions.  Buying capital equipment uses cash. 
Growing capacity in your company uses cash.  Adding inventory uses cash.  Adding
customers uses cash. 

The question when we grow our company isn’t whether we will use cash (we will) it’s how
are we going to finance our growth.  Sometimes you’ll just use excess cash provided from
profits.  Sometimes you’ll have to borrow money from the bank.  Sometimes you’ll need to
raise outside capital. 

Understanding where your cash goes and how you will provide more cash when you need it
are key parts of running a successful company.  Don’t be like me and run out of cash without
knowing why.  Understanding your cash flow statement will allow you to make better
decisions about your business.